Secure Transactions

Question 1

What should be the first sentence of any secured transaction answer?

Answer 1

Article 9 of the UCC governs any transaction regardless of its form that creates a security interest. This includes security interests in both tangible and intangible property.

Question 2

What are the three things that must happen for a security interest to attach?

Answer 2

1) Creditor must give debtor value (service, cash, loan, forbearance on preexiting debt, or access to a line of credit) “Value was given”

2) Debtor must have rights in the collateral (ownership or power to transfer rights in the collateral)

3) Security Agreement or possession/control of collateral – agree to grant the secured party a security interest by

• creditor taking possession of collateral
• authenticated security agreement
• creditor taking control of consumer deposit accounts

Question 3

What two features does a creditor need to feel secure in their interest?

Answer 3

Attachment

Perfection

Question 4

Definition of Attachment

Answer 4

The security interet is made effective, usually by the loan agreement and makes the security interest in the collateral effective against the debtor

Question 5

Security Agreement Requirements

Answer 5

1) written and shows intent to create a security interest
2) authenticated by debtor (signed or marked)
3) describe collateral

Question 6

Does order of the 3 attachment requirements matter?

Answer 6

Nope just all three have to be completed to attach

Question 7

Tangible collateral types under Article 9

Answer 7

consumer goods - personal use

equipment - goods used by a business but not sold

inventory – goods held for sale by a business

farm products – unique to farming ops (animals, feed, seeds)

fixtures – something attached to a building in a permanent way that is considered part of the real property

computer software

Question 8

Intangible Collateral

Answer 8

1) accounts receivable – think unpaid invoices

2) chattel paper (movable property)

Deposit accounts – checking/savings account

investment property – stocks and bonds

Question 9

Sufficient description of collateral in a Security Agreement

Answer 9

It must reasonably identify what is described such that it is objectively and reasonably determinable

VIN numbers and legal descriptions are not required

Question 10

Is “all assets” a sufficient description?

Answer 10

No

Question 11

Do electronic signatures, fingerprints, intitials, etc work for authentication?

Answer 11

Yes they do

Question 12

Possession of tangible objects

Answer 12

Possession is of tangible objects and includes things like holding collateral like at a pawn shop.

It proves your intent to encumber the property.

Question 12

What are the alternatives to security agreement?

Answer 12

Possession and control

Question 12

Control (security agreement alternative)

Answer 12

Involves control of intangible objects and is done by giving legal control over it and being able to withdraw from it

Banks do it by having the account in their bank, putting the name of the creditor on the account

Question 13

After Acquired property clauses

Answer 13

You can add an “after-acquired” property clause in the security agreement to have an interest in inventory or assets acquired after signing the agreement.

Question 14

What happens if the debtor transforms or sells your collateral?

Answer 14

Automatic perfection for 20 days in whatever he transforms it into.

Must file a financing statement or it unperfects on day 21

Question 15

Step 2 after attachment

Answer 15

Perfecting the security interest

Question 16

What is the effect of perfection?

Answer 16

It gives a lender rights against the world and puts them on notice.

Question 17

To be legally adequate what should a description include

Answer 17

Collateral type

Question 18

Financing Statement Requirements

Answer 18

Typically filed with State Sec of State

Provides:
name of debtor
name of secured party
description of the collateral

Question 19

Sufficiency of Name on a Financing Statement

Answer 19

Corp - name on statement must match the name of the debtor as recognized with the state

individual - name on driver’s license

If an ordinary search doesn’t bring up the right name, the error invalidates it

Question 20

Effect of a Financing Statement

Answer 20

It perfects the security interest and puts the world on notice

Question 21

Purchase Money Security Interest (PMSI)

Answer 21

A PMSI is created when

1) the secured party sells the good to the debtor on credit and retains a security interest in the goods sold (PPMSI) OR

2) the creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in the collateral. (FF PMSI)

Question 22

Exception to the After-Acquired Assets clause

Answer 22

Invalid for consumer products. They have to be products that are acquired within 10 days of the creditor providing the value

Question 23

Proceeds Defined and Rule

Answer 23

Proceeds are whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds and attach automatically when identifiable.

Question 24

Secured Transactions OOO

Answer 24

1) Is there an interest? (lease or secured interest – look for remaining economic value in the thing)

2) Did it attach? (security agreement/possession/control, value to debtor, rights retained by debtor)
- proceeds (automatic if identifiable)
- after-acquired valid if specific, unless consumer goods

3) Was it perfected?
- Financing statement
- taking possession of collateral
- control
- automatic perfection (Consumer/Equipment PMSI? Moto-vehicle cert of title exception? Dealer?)
- temporary perfection

4) Competing interest?
P v P (first in time unless consumer/equipment PMSI)
P v. UP (P wins)
P v. Judgment (File or perfect

Question 25

Effect of Debtor Moving to another State

Answer 25

State where debtor resides controls generally, but when the debtor moves the creditor has 4 months to reperfect under that state law or it becomes unperfected

Question 26

Temporary Perfection

Answer 26

PMSIs in non-consumer goods like equipment or inventory is perfected for 20 days, if a financing statement not filed within those 20 days, the security interest is unperfected after.

Question 27

Original Use Test

Answer 27

A debtor’s original intended use of collateral govern’s the collateral’s classification.

Question 28

Perfected v. Perfected

Answer 28

The first in time wins.

Question 29

Can you perfect via repossession?

Answer 29

Yes, as possession is a means of perfection

Question 30

Consumer PMSIs

Answer 30

A consumer good PMSIs automatically and permanently perfect

Question 31

Perfection for Proceeds

Answer 31

If a secured party has a perfected security interest in collateral, the secured party automatically has a perfected interest in any proceeds of the collateral for 20 days after the receipt of the proceeds.

After 20 days will remain perfected if

1) proceeds are identifiable cash proceeds

2) filed a financing statement in the same place as the collateral

3) you perfected within the 20 days

Question 32

Does a financing statement need to mention after acquired property to perfect in it?

Answer 32

No, a financing statement need not mention after-acquired property to perfect a security interest in it if the description is broad enough to cover it.

Compare to security agreements where after-acquired property needs to be specifically mentioned

Question 33

Which state’s law govern’s perfection?

Answer 33

Generally the law of state where debtor is located – their principal residence if an individual and their where registered or organized if a corp.

If unregistered, primary place of business

Question 34

Exceptions to Location Perfection rules

Answer 34

Possessory itnerests in fixtures and timber to be cut are governed by where the collateral is located

Goods covered by certificate of title are in the state issuing the most recent certificate of title

Deposit accounts – the state in which the bank has its chief executive office

Investment property – where certifiedsecurity is located
uncertified security – state where issuer was organized

Question 35

When does a security interest attach to proceeds?

Answer 35

When the proceeds are identifiable

Question 36

Perfected Interests and Sales

Answer 36

When a buyer buyer or leases something with a security interest on them, the security interest stays unless

1) authorized sale

Unauthorized but the buyer is a buyer in the ordinary course or it is a consumer-to-consumer sale

Question 37

Buyer in the ordinary course

Answer 37

1) in good faith
2) without knowledge that the sale violates the rights of another person
3) in ordinary course of business from a seller in the business of selling goods of this kind

Question 38

Consumer to consumer sales

Answer 38

A buyer takes free of a security interest even if perfected if

1) buyer buys without knowledge of the security interest
2) for value
3) for the buyer’s personal use
4) before a financing statement cover goods has been filed

• must be consumer to consumer sale

Question 39

Secured Party v. Judicial Lien Creditor

Answer 39

A prior perfected takes priority over a judicial lien.

If the lien creditor becomes such before interest –> prevails

Grace period of 20 days for PMSIs

Question 40

Secured Party v. Possessory Statutory Lien

Answer 40

Statutory lien prevails

Question 41

Perfected v. Gift receiver

Answer 41

A gift receiver doesn’t purchase for value so cannot be BIOC and so the secured interest stays attached

Question 42

Buyer not in the ordinary course of business

Answer 42

Takes subject to perfected security interst

free from unperfected security interest unless they know of the security interest when they give value or take delivery

Question 43

Self-help Repossession

Answer 43

Permissible as long as it is done without a breach of the peace. If you breach the peace, you lose authorization and may be liable for conversion

Question 44

Breach of the peace

Answer 44

potential to lead to violence, such as breaking and entering

Question 45

Resale of Collateral

Answer 45

requires a resaonable notification
1) to the debtor and sureties in the debt
2) to any other secured parties who have notified the secured party of their interests
3) secured parties who perfected by filling financing statements or making a notation on a certificate of tile

notice 10 days or more before sale

Question 46

Standard for Sales

Answer 46

all aspects of a sale must be commercially reasonable and the creditor is liable for damages if it is notC

Question 47

Contents of a Notice of Sale

Answer 47

Public – notice of time and place

Private – notice of time after which the sale will occur must be given